The growth of the regulatory state

While President Obama vacations on Martha’s Vineyard, he is supposedly committing to paper a plan to boost employment. During the recession unemployment has remained high, near 10%, and with the economy slowing again, that number is likely to go higher.

One area that hasn’t suffered jobs losses during Obama’s time in office is the government regulatory regime. In fact, it has managed to add a significant number of jobs, all, unfortunately, at the expense of business. While most Americans feel some level of regulation is necessary by the Federal government, over-regulation is always a danger. When that danger is realized, it is businesses who bear the brunt of the cost of compliance. And, of course, businesses pass their costs on to consumers in the price of their goods. So regulation compliance costs drive the price of goods up.

In the past three years of the Obama administration we’ve seen an explosion of regulations. Investors Business Daily brings you the gory details:

Regulatory agencies have seen their combined budgets grow a healthy 16% since 2008, topping $54 billion, according to the annual "Regulator’s Budget," compiled by George Washington University and Washington University in St. Louis.

That’s at a time when the overall economy grew a paltry 5%.

Meanwhile, employment at these agencies has climbed 13% since Obama took office to more than 281,000, while private-sector jobs shrank by 5.6%.

Michael Mandel, chief economic strategist at the Progressive Policy Institute, found that between March 2010 and March 2011 federal regulatory jobs climbed faster than either private jobs or overall government jobs.

Those agencies have churned out new regulations and rules at an amazing rate:

The Obama administration imposed 75 new major rules in its first 26 months, costing the private sector more than $40 billion, according to a Heritage Foundation study. "No other president has imposed as high a number or cost in a comparable time period," noted the study’s author, James Gattuso.

The number of pages in the Federal Register — where all new rules must be published and which serves as proxy of regulatory activity — jumped 18% in 2010.

This July, regulators imposed a total of 379 new rules that will cost more than $9.5 billion, according to an analysis by Sen. John Barrasso, R-Wyo.

And much more is on the way. The Federal Register notes that more than 4,200 regulations are in the pipeline. That doesn’t count impending clean air rules from the EPA, new derivative rules, or the FCC’s net neutrality rule. Nor does that include recently announced fuel economy mandates or eventual ObamaCare and Dodd-Frank regulations.

As mentioned above, regulations and rules impose a significant cost on businesses which must comply with them. In a time when the economy is staggering, these increases in costs delivers another body blow to any recovery. And most of them have been imposed via the Executive Branch through its various Departments and not Congress. The agenda brought to the White House by Barack Obama is being serviced by regulators and the legislators are being left out

"Our economy is continuing to sink," Sen. Barrasso said, "and it’s being weighed down by regulations coming out of this administration."

By 2008, the cost of complying with federal rules and regulations already exceeded $1.75 trillion a year, according to a 2010 study issued by the Small Business Administration.

Worse, the SBA found that small companies — which account for most of America’s new jobs — spend 36% more per employee to comply with these rules than larger firms.

Of course the administration flatly denies what the reports above tell us is happening:

Cass Sunstein, who runs the White House Office of Information and Regulatory Affairs, denies the regulatory upsurge, writing recently that "there has been no increase in rule making in this administration." He also notes Obama ordered a comprehensive regulatory review in January that uncovered $1 billion worth of needless red tape.

As is always the case, never believe what the administration tells you, always look behind the curtain at the facts. And the facts are that 379 new rules have been imposed under this administration and it has 4,200 new regulations “in the pipeline” not counting the exceptions to that count noted in the IBD article. So, as usual, the numbers tell a different story.

If President Obama is serious about creating job opportunities, this is an area in which he obviously exercises direct control via the federal government and the executive branch. Rolling back the regulator regime, suspending all new rules until a comprehensive study can be made of their economic impact and generally getting regulators out of the way of businesses would be a very good start.

Somehow I doubt any of that will find its way into the jobs plan Mr. Obama presents after his vacation.

Business cannot always pass the cost of regulation on in higher prices. Often, it passes them on by lowering labor costs. (i.e. layoffs).
We need to recognize that regulations are taxes and account for them.

There’s another unintended consequence that I wonder about, but which would be hard to gather data on.

Traditionally, people resort to the underground economy because of high taxes. But I think oppressive regulation could be a big factor too, and those two can reinforce one another.

For many people with small businesses that have only a few people, it’s simply not practical to spend the time complying with all the latest nonsense passed down by bureaucrats. Even if those business owners wanted to stay above board and pay their taxes, there are just not enough hours in the day to satisfy both customers and bureaucrats. The bureaucrats, in most cases, will lose because they don’t bring in any money.

There is another…and sometimes perhaps the worst…hard-to-quantify price of micro-regulation.
Contempt for the law is fostered, either BECAUSE of rinky-dink martinet bureaucrats enforcing it…or because it is NOT enforced.

I’m not from the Central Valley, but from the foothills near the Mex border. I will note that there seems to be much less enforcement on the white foothill dwellers then on the richer white suburb dwellers. Differential enforcement makes sense. Probably also happens in the inner city gettos. Doesn’t exactly enhance respect for the law.

One of the things that undermines the rule of law most effectively is the perception that it is…
1. capricious, and
2. impossible to fully comply with
Most small, entrepreneurial business people are reluctant, and unknowing, outlaws.

Also, once you decide to go under the table, the tendency is to get farther and farther under it. Might as well start hiring illegals, etc. This will tend to push the costs of taxes and regulation onto a smaller group of more productive people.

The thing is, to a business, taxes and regulations are the same thing: cost. The difference is that with taxes, the gov’t gets revenue. But to the business, they’re both costs that have to be either passed on to purchasers or avoided by ceasing the regulated/taxed activity (e.g. lay-offs). They say you can’t raise taxes in a recession. But you can’t raise regulations either and expect a recovery. The same reason for not raising taxes (takes money that could be used for hiring) applies equally to regulation (takes money that could be used for hiring). The administration’s failure to grasp this principle accounts for our current lack of recovery (which had actually started before Obamacare and the rest began to take effect). The recovery from the “Bush recession” had started before Obama’s regulatory hyperactivity killed it.

The truly ironic thing is that we are so overregulated that even Keynesianism can’t work anymore (if it ever could). Liberals always claim that infrastructure building will solve our problems. But the gov’t can just build things any more. It has to have design studies and feasibility studies and traffic studies and geology studies and wildlife studies and water use studies and clean air studies and more studies out the wazoo, then the application process has to go through numerous iterations just to jump through every required hoop so that you have the right unions and the right amount of minority workers and the right amount of women in management etc. etc. etc. etc., and then you have to fend off the lawsuits from local homeowners and environmental activists and antidevelopment activists, etc. – every single one of whose lawsuits are based on some regulation that they claim isn’t being applied or is being applied incorrectly.

Folks, this is why the ballot box no longer matters. Knowledgeable Britons learned this lesson a long time ago — it makes no difference who you vote in or out, the Civil Service lives on. The various bureaus can make or un-make a Prime Minister, by executing his/her agenda with alacrity and efficiency, or by dragging their feet and undermining his reforms at every turn.

The same holds true in the U.S. It doesn’t matter who is elected. Congress long ago ceded many of its legislative powers to unelected bureaucracies. Congress gets to avoid making the unpopular choices, and, in turn, the bureaucracies are assured of continued funding. Oh, there’ll be a lot of hot air about “defunding” this or that agency, but that’s all it is: hot air. The agencies continue to promulgate rules and regulations that have the force of law, Congresscritters get to keep on living off the public teat, and the People keep deluding themselves that their voice matters. See? Everyone’s happy.

Anyone who believes that reform is possible is likewise delusional. The Tea Party was the last chance to resolve the massive deficiencies in our political system in a reasonable manner. The Tea Party has failed — and we will all pay the price. A collapse of the United States is now inevitable, much as the collapse of the USSR was also inevitable. Whereas the USSR attempted to save itself by liberalizing its centralized power structure, the US is attempting to save itself by increasing centralization of its power bases. Everything that has happened over the past decade has yielded nothing but a greater accumulation of decision-making power at the center, with the predictable increase in inefficiency, corruption, un-accountability, and sclerosis. We are doomed. I do find it ironic that the demise of the USSR followed on the heels of the Soviet retreat from Afghanistan, and that the demise of the U.S. will likely follow from an ignominious American retreat from that same cesspool of a country.